How to Build a Plan for Trading?

by Naren S. Freelancer Blogger

Most of the new traders would know they are supposed to have a plan for trading before they start with it. But most of them won’t know about it or what does it mean.

How trading plan can be defined?

Essentially, a plan of trading is considered to be a contract between you and the markets. A plan of a business is a document which comprises of every single detail about the business, including product, cash flow, service, strategies, marketing, profit & loss, etc. Likewise, a plan of trading must comprise every detail about the business of trading which includes risk management, strategies, diversification, watchlist management, etc. Your plan for trading covering all of the bases should be concise and short as much as possible.

Holding the accountable yourself

The strategies of trading must have an edge when strict rules are met. All of them will be in your trading plan. Although it might sound simple to remember those rules, when money comes in front and emotions start to play it can become easy to break the rules. No doubt, following them accurately needs discipline, but writing them somewhere can increase the success rate. Click here to know more about the process.

However, if you have a plan with no strategy of trading, by the time you might bend the rules when money comes in front and you’ll start to face the losses. As they will be broken, your strategy will get different from the strategy you knew was profitable. So how would you know that these rules will work?

With risk management, you might have to risk 1% of trade. But without any contract between you and the market, the risk might start to come up when you start to get impatient or you get greedy to get a winning streak. To sum up, a trading plan is there to keep you accountable to the markets and ensure better consistency in trading.

What should be included?

The most essential information is risk management. These are some of the things that need to be considered:

è How much risk in a day?

è How much risk in a trade?

è How much is the overall exposure of risk?

è How much risk in a sector?

è When to make the trades free from risk?

All of them need to be considered seriously when you develop or learn a new strategy.